Avon 2010 Annual Report Download - page 21

Our business is conducted worldwide primarily in one channel, direct-selling.
Our business is conducted worldwide, primarily in the direct-selling channel. Sales are made to the ultimate consumer principally through
approximately 6.5 million active independent Representatives worldwide. There is a high rate of turnover among Representatives, which is a
common characteristic of the direct-selling business. As a result, in order to maintain our business and grow our business in the future, we
need to recruit, retain and service Representatives on a continuing basis and continue to innovate the direct-selling model. If consumers
change their purchasing habits, such as by reducing purchases of beauty and related products generally, or by reducing purchases from
Representatives or buying beauty and related products in channels other than in direct-selling, this could reduce our sales and have a material
adverse effect on our business, financial condition and results of operations. If our competitors establish greater market share in the direct-
selling channel, our business, financial condition and operating results may be adversely affected. Furthermore, if any government bans or
severely restricts our business method of direct-selling, our business, financial condition and operating results may be adversely affected.
Our ability to conduct business, particularly in international markets, may be affected by
political, legal, tax and regulatory risks.
Our ability to capitalize on growth, particularly in new international markets, and to maintain the current level of operations, particularly in
our existing international markets, is exposed to risks associated with our international operations, including:
• the possibility that a foreign government might ban or severely restrict our business method of direct-selling, or that local civil unrest,
political instability or changes in diplomatic or trade relationships might disrupt our operations in an international market;
• the lack of well-established or reliable legal systems in certain areas where we operate;
• the adoption of new U.S. or international tax legislation or exposure to additional tax liabilities;
• the possibility that a government authority might impose legal, tax or other financial burdens on our Representatives, as direct sellers, or
on Avon, due, for example, to the structure of our operations in various markets; and
• the possibility that a government authority might challenge the status of our Representatives as independent contractors or impose
employment or social taxes on our Representatives.
For example, in 1998, the Chinese government banned direct-selling but, subsequently in April 2005, the Chinese government granted
approval for us to proceed with a limited test of direct-selling in certain areas. The Chinese government later issued direct-selling regulations
in late 2005, and we were granted a direct-selling license by China’s Ministry of Commerce in late February 2006, which has allowed us to
commence direct-selling under such regulations. However, there can be no assurance that these and other regulations and approvals will not
be rescinded, restricted or otherwise altered, which may have a material adverse effect on our direct-selling business in China. There can be
no assurance that we will be able to successfully transition and evolve our business in China in connection with the development and
evolution of the direct-selling business in that market and successfully operate using a direct-selling model permitted in that market, or that
we will experience growth in that or other emerging markets. We may encounter similar political, legal and regulatory risks in other
international markets in our portfolio.
We are also subject to the adoption, interpretation and enforcement by governmental agencies of other foreign laws, rules, regulations or
policies, including any changes thereto, such as restrictions on trade, import and export license requirements, privacy and data protection
laws, records and information management, and tariffs and taxes, which may require us to adjust our operations and systems in certain
markets where we do business. For example, privacy and data protection laws are subject to frequently changing rules and regulations,
which may vary among the various jurisdictions where we operate. If we are unable to adhere to or successfully implement processes in
response to changing regulatory requirements, our business and/or reputation may be adversely affected. In addition, we face legal and
regulatory risks in the United States and, in particular, cannot predict with certainty the outcome of various contingencies or the impact that
pending or future legislative and regulatory changes may have on our business in the future. The U.S. Federal Trade Commission has
proposed business opportunity regulations which may have an effect upon the Company’s method of operating in the U.S. It is not possible
to gauge what any final regulation may provide, its effective date or its impact at this time.
We are subject to financial risks related to our international operations, including exposure to
foreign currency fluctuations.
We operate globally, through operations in various locations around the world, and derive approximately 83% of our consolidated revenue
from our operations outside of the U.S.
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